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Item 1. Financial Statements

2024-07-25 compared with 2024-04-25 · 136 added, 104 removed, 532 unchanged (31% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions, except per share amounts 2024 2023 2024 2023

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CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

$ in millions, except par value March 31, 2024 December 31, 2023

$ in millions, except par value June 30, 2024 December 31, 2023

Cash and cash equivalents $ 3,272 $ 3,109

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31

Six Months Ended June 30

$ in millions 2024 2023

1 unchanged sentence

Net earnings $ 1,884 $ 1,654

Adjustments to reconcile to net cash used in operating activities:

Adjustments to reconcile to net cash provided by operating activities:

Depreciation and amortization 625 621

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Other, net 16 51

Net cash used in operating activities ( 706 ) ( 702 )

Net cash provided by operating activities 719 217

Investing activities

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Net proceeds from issuance of long-term debt 2,495 1,995

Net borrowings on commercial paper — 768

Common stock repurchases ( 1,752 ) ( 931 )

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Net cash provided by financing activities 34 1,202

Decrease in cash and cash equivalents ( 48 ) ( 82 )

Increase in cash and cash equivalents 163 807

Cash and cash equivalents, beginning of year 3,109 2,577

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions, except per share amounts 2024 2023 2024 2023

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Investments in equity securities and joint ventures where the company has significant influence, but not control, are accounted for using the equity method.

Effective July 1, 2024, the company realigned the Strategic Deterrent Systems (SDS) division, which includes the Ground-Based Strategic Deterrent (“Sentinel”) program, from Space Systems to Defense Systems.

The realignment is not reflected in the financial information contained in this report;

it will be reflected in the company’s operating results beginning in the third quarter of 2024.

These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP” or “FAS”) and in accordance with the rules of the Securities and Exchange Commission (SEC) for interim reporting.

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If it is determined that a loss is expected to result on an individual performance obligation, the entire amount of the estimable future loss, including an allocation of general and administrative expense, is charged against income in the period the loss is identified.

B-21 Low-Rate Initial Production Options

In 2015, the U.S.

Air Force awarded Northrop Grumman the B-21 contract, which includes a base contract for engineering and manufacturing development (EMD) and five low-rate initial production (LRIP) options in varying quantities.

The EMD phase of the program is largely cost type and began at contract award.

The LRIP options are largely fixed price and are expected to continue to be awarded and executed through approximately the end of the decade.

During the fourth quarter of 2023, we recognized a projected loss of $ 1.56 billion across the five LRIP options.

During the first quarter of 2024, we again reviewed our estimated profitability on the LRIP phase of the program and made no significant changes to the previously recognized loss.

The company’s first quarter 2024 results reflect our

The LRIP options are largely fixed price and are expected to continue to be awarded and executed through

NORTHROP GRUMMAN CORPORATION

current best estimate of our cost to complete the LRIP options, as well as the outcome of ongoing discussions with our suppliers and our customer.

If our estimated cost to complete the LRIP phase of the program changes or our assumptions regarding contract performance, quantities, or funding to mitigate the impact of macroeconomic disruptions are resolved more or less favorably than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

As of March 31, 2024, the remaining loss accrual is $ 1.5 billion, of which $ 994 million is included in Other current liabilities with the remainder included in Other non-current liabilities.

HALO Engineering Change Proposal

At the request of the National Aeronautics and Space Administration (NASA), Space Systems submitted an engineering change proposal (ECP) during the fourth quarter of 2023 for scope increases and other aspects of the Habitation and Logistics Outpost (HALO) contract largely stemming from evolving Lunar Gateway architecture and mission requirements.

The ECP addresses both work performed and work expected to be performed by the company resulting from scope changes previously approved by NASA, as well as changes NASA has requested the company to propose but has not yet directed the company to perform.

The company has begun negotiating with NASA on these various changes and other aspects of the HALO contract.

During the first quarter of 2024, we again reviewed our estimated profitability on the HALO contract and made no significant changes.

The company’s first quarter 2024 results reflect our current best estimate of the outcome of the ECP negotiations assuming the terms of the current contract;

however, if the outcome is less favorable than what we have assumed, it could have an adverse effect on our financial position, results of operations and/or cash flows.

approximately the end of the decade.

In addition to the five LRIP options, Northrop Grumman and the U.S.

Air Force have established not to exceed (NTE) pricing for additional aircraft up to unit 40.

The average NTE value for these subsequent lots is above the average unit price of the five LRIP lots, and the NTE lots include an economic price adjustment clause to protect against certain inflationary pressures.

Final terms, quantity, and pricing for these subsequent lots are not fully negotiated.

During the fourth quarter of 2023, we recognized a projected loss of $ 1.56 billion across the five LRIP options.

During the second quarter of 2024, we again reviewed our estimated profitability on the program and made no significant changes to the previously recognized loss.

The company’s second quarter 2024 results reflect our current best estimate of our cost to complete the LRIP and NTE aircraft, as well as the outcome of ongoing discussions with our suppliers and our customer.

If our estimated cost to complete the aircraft changes or our assumptions regarding contract performance, quantities, or funding to mitigate the impact of macroeconomic disruptions are resolved more or less favorably than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

As of June 30, 2024, the remaining loss accrual is $ 1.5 billion, of which $ 972 million is included in Other current liabilities with the remainder included in Other non-current liabilities.

Sentinel Program

In 2020, the U.S.

Air Force awarded Northrop Grumman a $ 13.3 billion contract for the EMD phase of the Sentinel program.

In January 2024, the U.S.

Air Force provided congressional notification that the Sentinel program was under a Nunn-McCurdy breach review, which is required when total program cost estimates exceed certain defined thresholds.

This notification, which had been driven primarily by increases in cost estimates for the Production and Deployment phases, commenced the process to achieve recertification for continuance of the program and update its baseline cost estimates.

We are currently executing under a cost-type contract for the EMD phase, and the Production and Deployment phases are yet to be priced and negotiated.

In July 2024, the Sentinel program was recertified for continuation by the DoD upon completion of the Nunn-McCurdy breach review.

In connection with the recertification, the DoD directed that the program be restructured, including plans for infrastructure related to the command and launch segment, which was the main driver of the increased cost estimates for the Production and Deployment phases.

We are partnering with our customer to establish a new program baseline as part of the restructuring activities.

During the second quarter of 2024, we reviewed our estimated profitability on the Sentinel program and made no significant changes.

The Sentinel EAC incorporates our best estimate of costs to complete the restructured EMD effort;

however, if the outcome is more or less favorable than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

Habitation and Logistics Outpost (HALO) Program

In 2021, the National Aeronautics and Space Administration (NASA) awarded Northrop Grumman Phase 5 of the HALO program to complete the design and development of HALO for NASA’s Gateway program.

At the request of NASA, Space Systems submitted an engineering change proposal (ECP) during the fourth quarter of 2023 for scope increases and other aspects of the HALO contract largely stemming from evolving Lunar Gateway architecture and mission requirements.

During the second quarter of 2024, the company and NASA made significant progress toward ECP resolution, and we updated our profitability estimate for the HALO contract accordingly.

We currently expect negotiations to be completed by the end of the year .

The following table presents the effect of aggregate net EAC adjustments:

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions, except per share data 2024 2023 2024 2023

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Diluted earnings per share (1)

0.20 0.39 0.70 0.63

(1) Based on a 21 percent federal statutory tax rate .

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When such adjustments occur, we generally disclose the nature, underlying conditions and financial impact of the adjustments.

No EAC adjustments on a single performance obligation had a significant impact on the financial statements during the three months ended March 31, 2024 or 2023.

No EAC adjustments on a single performance obligation had a significant impact on the

NORTHROP GRUMMAN CORPORATION

financial statements during the six months ended June 30, 2024.

During the three months ended June 30, 2023, we recorded a $ 36 million unfavorable EAC adjustment on the HALO program at Space Systems.

Backlog represents the future sales we expect to recognize on firm orders received by the company and is equivalent to the company’s remaining performance obligations at the end of each period.

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Backlog is converted into sales as costs are incurred or deliveries are made.

Company backlog as of March 31, 2024 was $ 78.9 billion.

Of our March 31, 2024 backlog, we expect to recognize approximately 40 percent as revenue over the next 12 months and 65 percent as revenue over the next 24 months, with the remainder to be recognized thereafter.

In January 2024, the company received a termination for convenience in our restricted Space business.

The company reduced unfunded backlog by $ 1.6 billion during the first quarter of 2024 related to the termination.

Company backlog as of June 30, 2024 was $ 83.1 billion.

Of our June 30, 2024 backlog, we expect to recognize approximately 40 percent as revenue over the next 12 months and 65 percent as revenue over the next 24 months, with the remainder to be recognized thereafter.

During the first quarter of 2024, the company reduced unfunded backlog by $ 1.6 billion related to a termination for convenience in our restricted space business.

During the second quarter of 2024, the company reduced unfunded backlog by $ 0.7 billion related to a termination for convenience on the Next Generation Interceptor (NGI) program at Space Systems.

Contract Assets and Liabilities

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Contract liabilities are equivalent to and reflected as Advance payments and billings in excess of costs incurred in the unaudited condensed consolidated statements of financial position.

The amount of revenue

NORTHROP GRUMMAN CORPORATION

recognized for the three months ended March 31, 2024 and 2023 that was included in the contract liability balances at the beginning of each year was $ 1.9 billion and $ 1.7 billion, respectively.

The amount of revenue recognized for the three and six months ended June 30, 2024 that was included in the December 31, 2023 contract liability balance was $ 1.1 billion and $ 3.0 billion, respectively.

The amount of revenue recognized for the three and six months ended June 30, 2023 that was included in the December 31, 2022 contract liability balance was $ 899 million and $ 2.6 billion, respectively.

Disaggregation of Revenue

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Property, Plant, and Equipment

Non-cash investing activities include capital expenditures incurred but not yet paid of $ 63 million and $ 43 million as of March 31, 2024 and 2023, respectively.

Non-cash investing activities include capital expenditures incurred but not yet paid of $ 77 million and $ 62 million as of June 30, 2024 and 2023, respectively.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of tax, are as follows:

$ in millions March 31, 2024 December 31, 2023

$ in millions June 30, 2024 December 31, 2023

Cumulative translation adjustment $ ( 138 ) $ ( 138 )

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For all periods presented, the company had no material related party transactions.

NORTHROP GRUMMAN CORPORATION

Accounting Standards Updates

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We are continuing to evaluate the disclosure impact of the final rule.

Other accounting standards updates adopted and/or issued, but not effective until after March 31, 2024, are not expected to have a material effect on the company’s consolidated financial position, results of operations and/or cash flows.

Other accounting standards updates adopted and/or issued, but not effective until after June 30, 2024, are not expected to have a material effect on the company’s consolidated financial position, results of operations and/or cash flows.

EARNINGS PER SHARE, SHARE REPURCHASES AND DIVIDENDS ON COMMON STOCK

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We calculate basic earnings per share by dividing net earnings by the weighted-average number of shares of common stock outstanding during each period.

NORTHROP GRUMMAN CORPORATION

Diluted Earnings Per Share

Diluted earnings per share include the dilutive effect of awards granted to employees under stock-based compensation plans.

The dilutive effect of these securities totaled 0.4 million shares and 0.6 million shares for the three months ended March 31, 2024 and 2023, respectively.

The dilutive effect of these securities totaled 0.2 million shares and 0.4 million shares for the three and six months ended June 30, 2024, respectively.

The dilutive effect of these securities totaled 0.5 million shares and 0.6 million shares for the three and six months ended June 30, 2023, respectively.

Share Repurchases

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Repurchases under the 2023 Repurchase Program commenced in February 2024 upon completion of the 2022 Repurchase Program.

As of March 31, 2024, repurchases under the 2023 Repurchase Program totaled $ 0.1 billion;

As of June 30, 2024, repurchases under the 2023 Repurchase Program totaled $ 0.6 billion;

$ 1.9 billion remained under this share repurchase authorization.

By its terms, the 2023 Repurchase Program will expire when we have used all authorized funds for repurchases.

NORTHROP GRUMMAN CORPORATION

Accelerated Share Repurchase Agreements

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Under the agreement, we made a payment of $ 1.0 billion to Morgan Stanley and received an initial delivery of 1.8 million shares valued at $ 800 million that were immediately canceled by the company.

The remaining balance of $ 200 million is included as a reduction to Retained earnings on the unaudited condensed consolidated statement of financial position.

The final number of shares to be repurchased will be based on the company’s daily volume-weighted average share price during the term of the agreement, less a discount.

The ASR is expected to be completed in the second quarter of 2024.

The remaining balance of $ 200 million was settled on May 1, 2024 with a final delivery of 0.4 million shares from Morgan Stanley.

The final average purchase price was $ 455.73 per share.

Share repurchases take place from time to time, subject to market conditions and management’s discretion, in the open market or in privately negotiated transactions.

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Per Share (1)

Date Completed Three Months Ended March 31

Date Completed Six Months Ended June 30

January 25, 2021 $ 3,000 7.0 $ 431.05 April 2023 — 1.4

January 24, 2022 $ 2,000 4.0 NM February 2024 2.1 —

January 24, 2022 (2)

$ 2,000 4.4 $ 455.01 February 2024 2.5 0.6

December 6, 2023 $ 2,500 1.4 $ 453.30 1.4 —

(1) As a part of the 2023 Repurchase Program, the board of directors approved that the purchases under this program, and the authorization under the 2022 program, be exclusive of brokerage commissions and other costs of execution, including taxes.

(1) As a part of the 2023 Repurchase Program, the board of directors approved that the purchases under this program, and the authorization under the 2022 Repurchase Program, be exclusive of brokerage commissions and other costs of execution, including taxes.

Commissions paid are included for the 2021 Repurchase Program.

(2) The 2022 Share Repurchase program completed in February 2024;

however, it includes the $ 1.0 billion ASR for which the final delivery of shares is still outstanding.

The final average share price for shares purchased under the 2022 Repurchase Program will be determined once the ASR has completed and all related shares have been delivered.

NORTHROP GRUMMAN CORPORATION

(2) The 2022 Repurchase Program completed in February 2024;

however, it included the $ 1.0 billion ASR for which the final delivery of shares was outstanding at the end of the first quarter of 2024.

On May 1, 2024, the company received a final delivery of 0.4 million shares for that ASR, which are included in the 2022 Repurchase Program authorization.

Dividends on Common Stock

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Inventoried costs, net consist of the following:

$ in millions March 31, 2024 December 31, 2023

$ in millions June 30, 2024 December 31, 2023

Contracts in process $ 973 $ 647

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Inventoried costs, net $ 1,504 $ 1,109

Three Months Ended March 31

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Three Months Ended June 30 Six Months Ended June 30

$ in millions 2024 2023 2024 2023

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Effective income tax rate 18.0 % 17.7 % 17.3 % 16.7 %

The company’s first quarter 2024 effective tax rate (ETR) increased to 16.5 percent from 15.6 percent in the prior year period principally due to higher interest expense on unrecognized tax benefits.

The first quarter 2024 ETR includes benefits of $ 44 million for research credits and $ 15 million for foreign derived intangible income (FDII), partially offset by $ 21 million of interest expense on unrecognized tax benefits.

The first quarter 2023 ETR included benefits of $ 40 million for research credits and $ 15 million for FDII, partially offset by $ 13 million of interest expense on unrecognized tax benefits.

Taxes receivable, which are included in Prepaid expenses and other current assets in the unaudited condensed consolidated statements of financial position, were $ 1.3 billion as of March 31, 2024 and $ 1.5 billion as of December 31, 2023.

Current Quarter

The company’s second quarter 2024 effective tax rate (ETR) increased to 18.0 percent from 17.7 percent in the prior year period principally due to higher interest expense on unrecognized tax benefits.

The second quarter 2024 ETR includes benefits of $ 46 million for research credits and $ 15 million for foreign derived intangible income (FDII), partially offset by $ 25 million of interest expense on unrecognized tax benefits.

The second quarter 2023 ETR included benefits of $ 38 million for research credits and $ 14 million for FDII, partially offset by $ 14 million of interest expense on unrecognized tax benefits.

The company’s year to date 2024 ETR increased to 17.3 percent from 16.7 percent in the prior year period principally due to higher interest expense on unrecognized tax benefits.

The year to date 2024 ETR includes benefits of $ 90 million for research credits and $ 30 million for FDII, partially offset by $ 46 million of interest expense on unrecognized tax benefits.

The year to date 2023 ETR included benefits of $ 78 million for research credits and $ 29 million for FDII, partially offset by $ 27 million of interest expense on unrecognized tax benefits.

Taxes receivable, which are included in Prepaid expenses and other current assets in the unaudited condensed consolidated statements of financial position, were $ 583 million as of June 30, 2024 and $ 1.5 billion as of December 31, 2023.

The company has recorded unrecognized tax benefits related to our methods of accounting associated with the timing of revenue recognition and related costs and the 2017 Tax Cuts and Jobs Act, which includes related final revenue recognition regulations issued in December 2020 under IRC Section 451(b) and procedural guidance issued in August 2021.

As of March 31, 2024, we have approximately $ 2.1 billion in unrecognized tax benefits, including $ 872 million related to our position on IRC Section 451(b).

As of June 30, 2024, we have approximately $ 2.1 billion in unrecognized tax benefits, including $ 901 million related to our position on IRC Section 451(b).

If these matters, including our position on IRC Section 451(b), are unfavorably resolved, there could be a material impact on our future cash flows.

It is reasonably possible that within the next 12 months our unrecognized tax benefits related to these matters may increase by approximately $ 60 million.

Our current unrecognized tax benefits, which are included in Other current liabilities in the unaudited condensed consolidated statements of financial position, were $ 1.0 billion and $ 964 million as of March 31, 2024 and December 31, 2023, respectively, with the remainder of our unrecognized tax benefits included within Other non-current liabilities.

Our current unrecognized tax benefits, which are included in Other current liabilities in the unaudited condensed consolidated statements of financial position, were $ 1.1 billion and $ 964 million as of June 30, 2024 and December 31, 2023, respectively, with the remainder of our unrecognized tax benefits included within Other non-current liabilities.

We file income tax returns in the U.S.

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The matters not addressed by the agreed RAR related to the company’s 2014-2017 federal income tax returns and refund claims related to its 2007-2016 federal tax returns are currently under review by the IRS Appeals Office.

NORTHROP GRUMMAN CORPORATION

The Organization for Economic Co-operation and Development (OECD) has issued Pillar Two model rules for a new global minimum tax of 15% effective January 1, 2024.

The Organization for Economic Co-operation and Development has issued Pillar Two model rules for a new global minimum tax of 15% effective January 1, 2024.

While it is uncertain whether the United States will enact legislation to adopt Pillar Two, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar Two.

Pillar Two had no impact on our first quarter 2024 effective tax rate, and we do not currently expect Pillar Two to significantly impact our effective tax rate going forward.

Pillar Two had no impact on our second quarter or year to date 2024 effective tax rate, and we do not currently expect Pillar Two to significantly impact our effective tax rate going forward.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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Marketable securities are included in Other non-current assets in the unaudited condensed consolidated statements of financial position.

NORTHROP GRUMMAN CORPORATION

The company’s derivative portfolio consists primarily of foreign currency forward contracts.

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The following table presents the financial assets and liabilities the company records at fair value on a recurring basis identified by the level of inputs used to determine fair value:

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

$ in millions Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

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Derivatives — 2 — 2 — 5 — 5

The notional value of the company’s foreign currency forward contracts at March 31, 2024 and December 31, 2023 was $ 273 million and $ 286 million, respectively.

The portion of notional value designated as a cash flow hedge at March 31, 2024 and December 31, 2023 was $ 133 million and $ 162 million, respectively.

The derivative fair values and related unrealized gains/losses at March 31, 2024 and December 31, 2023 were not material.

There were no transfers of financial instruments into or out of Level 3 of the fair value hierarchy during the three months ended March 31, 2024.

The notional value of the company’s foreign currency forward contracts at June 30, 2024 and December 31, 2023 was $ 379 million and $ 286 million, respectively.

The portion of notional value designated as a cash flow hedge at June 30, 2024 and December 31, 2023 was $ 245 million and $ 162 million, respectively.

The derivative fair values and related unrealized gains/losses at June 30, 2024 and December 31, 2023 were not material.

There were no transfers of financial instruments into or out of Level 3 of the fair value hierarchy during the six months ended June 30, 2024.

The carrying value of cash and cash equivalents approximates fair value.

Long-term Debt

The estimated fair value of long-term debt was $ 15.5 billion and $ 13.4 billion as of March 31, 2024 and December 31, 2023, respectively.

The estimated fair value of the company’s long-term debt was $ 15.3 billion and $ 13.4 billion as of June 30, 2024 and December 31, 2023, respectively.

We calculated the fair value of long-term debt using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the company’s existing debt arrangements.

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• $ 1.15 billion of 5.20 % senior notes due 2054 (the “2054 Notes”).

NORTHROP GRUMMAN CORPORATION

In February 2023, the company issued $ 2.0 billion of unsecured senior notes for general corporate purposes, including debt repayment, share repurchases, and working capital, as follows:

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The notes are generally subject to redemption, in whole or in part, at the company’s discretion at any time, or from time to time, prior to maturity at a redemption price equal to the greater of 100% of the principal amount of the notes to be redeemed or an applicable “make-whole” amount, plus accrued and unpaid interest.

NORTHROP GRUMMAN CORPORATION

INVESTIGATIONS, CLAIMS AND LITIGATION

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In 2022, we resolved several disputes and regulatory proceedings concerning the scope and allocation of remediation responsibilities and costs related to this site and we continue remediation consistent with agreements through which those disputes were resolved.

The company continues to be involved in related disputes, none of which are material individually or in the aggregate.

The company continues to be involved in other remediation-related disputes, none of which are material individually or in the aggregate.

We are also a party to various individual lawsuits and a putative class action in the Eastern District of New York alleging personal injury and property damage related to the legacy Bethpage environmental conditions.

The court has stayed the filed individual lawsuits, pending its decision on class certification.

The court has stayed the filed individual lawsuits, pending its decision on class certification, which the court will undertake if an ongoing mediation between the parties is unsuccessful.

We are also a party, and may become a party, to other lawsuits brought by or against insurance carriers, and by other individual plaintiffs and/or putative classes, as well as other parties.

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The company received from the U.S.

Department of Justice (DOJ) a criminal subpoena on December 9, 2022, and a civil investigative demand (CID) on February 2, 2023, both seeking information regarding financial and cost accounting and controls that appears focused on the interest rate assumptions the company used to determine our CAS pension expense, which we discuss in Note 7 below.

Government Cost Accounting Standards (CAS) pension expense, which we discuss in Note 7 below.

The company is engaging with the government and responding to the requests.

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The nature of legal proceedings is such that we cannot assure the outcome of any particular matter.

However, based on information available to the company to date, the company does not believe that the outcome of any of these other matters pending against the company is likely to have a material adverse effect on the company’s unaudited condensed consolidated financial position as of March 31, 2024, or its annual results of operations and/or cash flows.

However, based on information available to the company to date, the company does not believe that the outcome of any of these other matters pending against the company is likely to have a material adverse effect on the company’s unaudited condensed consolidated financial position as of June 30, 2024, or its annual results of operations and/or cash flows.

COMMITMENTS AND CONTINGENCIES

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Such provisions are reviewed periodically using the most recent information available.

The company believes it has adequately reserved for disputed amounts that are probable and reasonably estimable, and that the outcome of any such matters would not have a material adverse effect on its unaudited condensed consolidated financial position as of March 31, 2024, or its annual results of operations and/or cash flows.

NORTHROP GRUMMAN CORPORATION

The company believes it has adequately reserved for disputed amounts that are probable and reasonably estimable, and that the outcome of any such matters would not have a material adverse effect on its unaudited condensed consolidated financial position as of June 30, 2024, or its annual results of operations and/or cash flows.

In 2019, the Defense Contract Management Agency (DCMA) raised questions about an interest rate assumption used by the company to determine our CAS pension expense.

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On February 15, 2024, DCMA sent to the company a Contracting Officer’s determination of noncompliance with CAS, which is an interim, non-final determination, and the parties are engaged in ongoing discussions.

As noted in Note 6 above, the company received from the DOJ a criminal subpoena on December 9, 2022 and a CID on February 2, 2023, both seeking information that appears related to the interest rate assumptions at issue in our discussions with DCMA.

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at issue in our discussions with DCMA.

The company is engaging with the government and responding to the requests.

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The table below summarizes the amount accrued for environmental remediation costs, management’s estimate of the amount of reasonably possible future costs in excess of accrued costs and the deferred costs expected to be recoverable through overhead charges on U.S.

government contracts as of March 31, 2024 and December 31, 2023:

government contracts as of June 30, 2024 and December 31, 2023:

$ in millions Accrued Costs (1)(2)

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Deferred Costs (3)

March 31, 2024 $ 587 $ 381 $ 520

June 30, 2024 $ 574 $ 382 $ 535

December 31, 2023 584 387 518

(1) As of March 31, 2024, $ 226 million is recorded in Other current liabilities and $ 361 million is recorded in Other non-current liabilities.

(1) As of June 30, 2024, $ 223 million is recorded in Other current liabilities and $ 351 million is recorded in Other non-current liabilities.

(2) Estimated remediation costs are not discounted to present value.

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government contracts.

(3) As of March 31, 2024, $ 208 million is deferred in Prepaid expenses and other current assets and $ 312 million is deferred in Other non-current assets.

These amounts are evaluated for recoverability on a routine basis.

Although management cannot predict whether (i) new information gained as our environmental remediation projects progress, (ii) changes in remediation standards or other requirements to which we are subject, or (iii) other changes in facts and circumstances will materially affect the estimated liability accrued, we do not anticipate that future remediation expenditures associated with our currently identified projects will have a material adverse effect on the company’s unaudited condensed consolidated financial position as of March 31, 2024, or its annual results of operations and/or cash flows.

(3) As of June 30, 2024, $ 212 million is deferred in Prepaid expenses and other current assets and $ 323 million is deferred in Other non-current assets.

These amounts reflect a $ 26 million increase during the second quarter of 2024 in our estimated recovery of certain environmental remediation costs and are evaluated for recoverability on a routine basis.

Although management cannot predict whether (i) new information gained as our environmental remediation projects progress, (ii) changes in remediation standards or other requirements to which we are subject, or (iii) other changes in facts and circumstances will materially affect the estimated liability accrued, we do not anticipate that future remediation expenditures associated with our currently identified projects will have a material adverse effect on the company’s unaudited condensed consolidated financial position as of June 30, 2024, or its annual results of operations and/or cash flows.

Financial Arrangements

In the ordinary course of business, the company uses standby letters of credit and guarantees issued by commercial banks and surety bonds issued principally by insurance companies to guarantee the performance on certain obligations.

At March 31, 2024, there were $ 363 million of stand-by letters of credit and guarantees and $ 263 million of surety bonds outstanding.

At June 30, 2024, there were $ 365 million of stand-by letters of credit and guarantees and $ 272 million of surety bonds outstanding.

Commercial Paper

The company maintains a commercial paper program that serves as a source of short-term financing with capacity to issue unsecured commercial paper notes up to $ 2.5 billion.

At March 31, 2024, there were no commercial paper borrowings outstanding.

At June 30, 2024, there were no commercial paper borrowings outstanding.

Credit Facilities

The company maintains a five-year senior unsecured credit facility in an aggregate principal amount of $ 2.5 billion (the “2022 Credit Agreement”) that matures in August 2027 and is intended to support the company's commercial paper program and other general corporate purposes.

Commercial paper borrowings reduce the amount available for

NORTHROP GRUMMAN CORPORATION

borrowing under the 2022 Credit Agreement.

At March 31, 2024, there were no borrowings outstanding under this facility.

Commercial paper borrowings reduce the amount available for borrowing under the 2022 Credit Agreement.

At June 30, 2024, there were no borrowings outstanding under this facility.

The 2022 Credit Agreement contains generally customary terms and conditions, including covenants restricting the company’s ability to sell all or substantially all of its assets, merge or consolidate with another entity or undertake other fundamental changes and incur liens.

The company also cannot permit the ratio of its debt to capitalization (as set forth in the credit agreement) to exceed 65 percent.

At March 31, 2024, the company was in compliance with all covenants under its credit agreements.

At June 30, 2024, the company was in compliance with all covenants under its credit agreements.

NORTHROP GRUMMAN CORPORATION

RETIREMENT BENEFITS

The cost to the company of its pension and other postretirement benefit (OPB) plans is shown in the following table:

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

Benefits OPB Pension

$ in millions 2024 2023 2024 2023 2024 2023 2024 2023

8 unchanged sentences

Contributions made by the company to its retirement plans are as follows:

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions 2024 2023 2024 2023

4 unchanged sentences

The following table presents the number of restricted stock rights (RSRs) and restricted performance stock rights (RPSRs) granted to employees under the company’s long-term incentive stock plan and the grant date aggregate fair value of those stock awards for the periods presented:

Three Months Ended March 31

Six Months Ended June 30

in millions 2024 2023

2 unchanged sentences

Grant date aggregate fair value $ 105 $ 101

RSRs typically vest on the third anniversary of the grant date, while RPSRs generally vest and pay out based on the achievement of certain performance metrics over a three-year period.

NORTHROP GRUMMAN CORPORATION

RSRs typically vest on the third anniversary of the grant date, while RPSRs generally vest and pay out based on the achievement of certain performance metrics and market conditions over a three-year period.

The following table presents the minimum and maximum aggregate payout amounts related to cash units (CUs) and cash performance units (CPUs) granted to employees in the periods presented:

Three Months Ended March 31

Six Months Ended June 30

$ in millions 2024 2023

2 unchanged sentences

CUs typically vest and settle in cash on the third anniversary of the grant date, while CPUs generally vest and pay out in cash based on the achievement of certain performance metrics over a three-year period.

NORTHROP GRUMMAN CORPORATION

SEGMENT INFORMATION

The following table presents sales and operating income by segment:

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

$ in millions 2024 2023 2024 2023

22 unchanged sentences

For financial statement purposes, we account for our employee pension plans in accordance with FAS.

However, the cost of these plans is charged to our contracts in accordance with applicable Federal Acquisition Regulation (FAR) and U.S.

Government Cost Accounting Standards (CAS) requirements.

However, the cost of these plans is charged to our contracts in accordance with applicable Federal Acquisition Regulation (FAR) and CAS requirements.

The FAS/CAS operating adjustment reflects the difference between CAS pension expense included as cost in segment operating income and the service cost component of FAS expense included in total operating income.

Unallocated Corporate Expense

Unallocated corporate expense includes the portion of corporate costs not considered allowable or allocable under the applicable FAR and CAS requirements, and therefore not allocated to the segments, such as changes in deferred state income taxes and a portion of management and administration, legal, environmental, compensation, retiree

NORTHROP GRUMMAN CORPORATION

benefits, advertising and other corporate unallowable costs.

Unallocated corporate expense also includes costs not considered part of management’s evaluation of segment operating performance, such as amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair value of property, plant and equipment acquired through business combinations, as well as certain compensation and other costs.

NORTHROP GRUMMAN CORPORATION

Disaggregation of Revenue

Sales by Customer Type Three Months Ended March 31

Sales by Customer Type Three Months Ended June 30 Six Months Ended June 30

2024 2023 2024 2023

$ in millions $ % (3)

44 unchanged sentences

NORTHROP GRUMMAN CORPORATION

Sales by Contract Type Three Months Ended March 31

Sales by Contract Type Three Months Ended June 30 Six Months Ended June 30

2024 2023 2024 2023

$ in millions $ % (1)

24 unchanged sentences

NORTHROP GRUMMAN CORPORATION

Sales by Geographic Region Three Months Ended March 31

Sales by Geographic Region Three Months Ended June 30 Six Months Ended June 30

2024 2023 2024 2023

$ in millions $ % (2)

4 unchanged sentences

All other (1)

8 — % 5 — % 15 — % 15 — %

Intersegment sales 59 64 118 129

21 unchanged sentences

All other (1)

11 — % 20 1 % 21 — % 26 — %

Intersegment sales 25 26 52 58

13 unchanged sentences

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated statement of financial position of Northrop Grumman Corporation and subsidiaries (the “Company”) as of March 31, 2024, and the related condensed consolidated statements of earnings and comprehensive income, cash flows, and changes in shareholders’ equity for the three-month periods ended March 31, 2024 and 2023, and the related notes (collectively referred to as the “interim financial information”).

We have reviewed the accompanying condensed consolidated statement of financial position of Northrop Grumman Corporation and subsidiaries (the “Company”) as of June 30, 2024, and the related condensed consolidated statements of earnings and comprehensive income and changes in shareholders’ equity for the three-month and six-month periods ended June 30, 2024 and 2023, and of cash flows for the six-month periods ended June 30, 2024 and 2023 and the related notes (collectively referred to as the “interim financial information”).

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

6 unchanged sentences

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with standards of the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB.

A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.

3 unchanged sentences

McLean, Virginia

April 24, 2024

July 24, 2024

NORTHROP GRUMMAN CORPORATION

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements